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By Hugo Pinto, Innovation Officer IBM iX

Hugo Pinto
Hugo Pinto

The result of disruption, in any industry, is often greater innovation.

In the 90’s, the music, photography and video rental businesses gave way to a new generation of Internet based services that not only disrupted these industries but also changed consumer expectations forever. In the 2000’s, this disruption, and resulting innovation, has only continued with the proliferation of social and mobile.

The innovators of the recent past have themselves been overtaken. Sony took on the Kodak Empire, but is already facing stiff competition from the iPhone led smartphone camera. It’s a phenomenon that is now cross-industry and cross-region.

Innovation is not necessarily about leveraging completely ‘new’ ideas to solve a problem however. It is often about looking at how others have approached the same problem, and leveraging their learnings in a new way. None of the technology used by Uber, for example, was actually new. Rather, they have used existing technology and data in a new way, bridging an ecosystem of demand with one of supply and providing a great user experience in the process.

Many innovators are recognising the power of the crowd to get things done more quickly, to generate additional ideas or even more funding. This is not only happening in technology, the financial sector is also beginning to catch up to this type of innovation. Fin-tech start-ups are increasingly delivering innovation facilitated by crowd sourcing, capitalising on the lack of consumer trust in traditional banks. In addition to new services, some start-ups are even moving in on the areas banks would traditionally own – from mortgages to money transfers and even business loans.

Some of the more successful examples include Azimo and LendInvest, peer-to-peer marketplaces for short-term mortgages, and Funding Circle, which facilitates peer-to-peer business loans.

Another particularly successful example taking on traditional retail banking is Fidor Bank, founded in Germany. Based around a social media community, users can join the community to discuss finance and share experiences with peers, use Fidor’s payment services or even become a full retail banking customer with a current account, loans and savings. With low overheads but high consumer trust, Fidor already has more than 200,000 people registered, 150,000 community members, €160m worth of deposits, and its lending totals about €100m.

Despite some larger companies creating their own innovation labs in response to this fin-tech challenge – many are too hampered by the boundaries of their legacy business models and systems to make a play at the opportunities being created by the ‘sharing economy’ brought about by mobile and social capabilities. So in this increasingly crowded and disrupted marketplace, where can banks look to deliver value?

While the bigger financial institutions may not be agile enough to provide some of the digital innovation being delivered by smaller fin-tech start-ups, they can facilitate digital innovation that delivers benefits to their customers and employees in other ways.

Last year, Citi launched its Mobile Challenge initiative in partnership with IBM, a global virtual competition that brings together the most innovative developers and leading technology sponsors to build, test and deploy new FinTech solutions. From the inaugural Challenges, Citi has selected 23 top innovations and is working with several of the teams to bring solutions to market.

Other banks are looking at how they can deliver their services in more innovative, and convenient ways to their customers. Nationwide, for example, has developed a mobile banking app for Android smartwatches. Developed in collaboration with IBM Interactive Experience, it is the first app capable of delivering such services.

Some financial organisations are also beginning to incorporate more advanced forms of analytics into their systems known as ‘cognitive computing’. This encompasses the latest developments in artificial intelligence, machine learning and natural language processing.

Through the deep content analysis this type of technology enables, organisations can accelerate and improve their decision making. They can ensure regulations are being met and that offences such as money laundering and insider trading are detected.

With so much tech disruption entering the market, we are on the cusp of a wave of innovation in the financial industry. We live in the consumer driven era of show me, don’t tell me, and businesses are no different. Teams have to be able to flexibly mix proprietary technology and knowledge with crowd-powered and open source solutions to be able to rapidly turn a vision into a product, a business model or a new process.

Externally, we see market forces changing to adapt to a new technological reality. Only by absorbing that change internally, and reflecting it in an innovation driven business culture can today’s companies stay competitive.